Supreme Court to lift cap on entry tax, states set to gain Rs 10,000cr

States can expect a revenue bonanza of up to Rs 10,000 crore to be paid by big corporate houses in the manufacturing sector.

States can expect a revenue bonanza of up to Rs 10,000 crore to be paid by big corporate houses in the manufacturing sector.

NEW DELHI: States can expect a revenue bonanza of up to Rs 10,000 crore to be paid by big corporate houses in the manufacturing sector as the Supreme Court on Friday said it would in April vacate its three-year-old interim order asking authorities to collect only 50% of entry tax.

Approximately Rs 30,000 crore is due from corporate houses, including Vedanta, Adani, Tata, Reliance Industries, Bharti Airtel, Hindalco, Bhushan Steel, Honda Siel, Xpro India, Essar and LG Electronics, as entry tax for raw material entering the states to reach their manufacturing units. The constitutional validi ty of entry tax was challenged by several corporate houses in various high courts, which gave conflicting judgments. The matter reached the Supreme Court which three years ago ordered states -mainly Odisha, Madhya Pradesh and Uttar Pradesh -to collect only 50% of entry tax and not ask for payment of penalties.

The bunch of petitions challenging validity of entry tax got referred to a five-judge constitution bench. It was then referred to a seven-judge bench and now stood referred to a nine-judge constitution bench, Odisha's counsel Kirti Renu Misra said. Initially , the court had allowed collection of 33% of entry tax which was later enhanced to 50%. However, states were restrained from collecting penalty for delay in depositing entry tax.

A bench of Chief Justice T S Thakur and Justice U U Lalit said it was unfair to deprive “poor“ states like Odisha of revenue that was due to it from entry tax.

This observation came when Nalco, through senior advocate Jagdeep Dhankar, sought parity with other companies in payment of entry tax. It had been asked by tax authorities to pay Rs 4.18 crore as entry tax and Rs 8.37 cro re as penalty.

Making a departure from the interim order, the bench asked Nalco's counsel Kedarnath Tripathy to deposit the entire entry tax demand of Rs 4.18 crore but stayed payment of the penalty amount.Taking this formula for payment of entry tax, states could reap a revenue of Rs 10,000 crore from the total estimated due of Rs 30,000 crore.

What the court said thereafter was important for the corporate houses. It asked the Odisha government to make a list of payments due from all companies since the time collection of entry tax was halved by the apex court and submit it to the court within three weeks.

The bench said, “We are inclined to vacate the interim order. Why should rich corporates like Vedanta, Adani and Essar deprive a poor state like Odisha, where many are poor and do not have proper shelter to live, be deprived of its revenue?“